U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q-SB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
--- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
___________
Commission File Number 000-21671
-----------
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
----------------------------------------------
(Name of Small Business Issuer in its charter)
INDIANA 35-1887991
- ------------------------ ---------------------
(State of incorporation) I.R.S. Employer
Identification Number
107 N. PENNSYLVANIA STREET, SUITE 700, INDIANAPOLIS, INDIANA 46204
------------------------------------------------------------------
(Address of principal executive offices and zip code)
(317) 261-9000
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of March 31, 1999, there were 1,908,279 Common Shares outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes X No
--- ---
<PAGE>
TABLE OF CONTENTS
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
Report on Form 10Q-SB
for Quarter Ended
March 31, 1999
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998....................................1
Consolidated Statements of Operations - Three months
ended March 31, 1999 and 1998............................2
Consolidated Statements of Cash Flows - Three months
ended March 31, 1999 and 1998............................3
Notes to Consolidated Financial Statements...............4
Item 2. Management's Discussion and Analysis.................5 - 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................9
Item 2. Changes in Securities....................................9
Item 3. Default Upon Senior Securities...........................9
Item 4. Submission of Matters to a Vote of Security Holders......9
Item 5. Other Information .......................................9
Item 6. Exhibits and Reports on Form 8-K.........................9
Signatures .........................................................9
<PAGE>
The National Bank of Indianapolis Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
(Unaudited) (Note)
-----------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 33,598,208 $ 26,547,970
Federal funds sold 15,600,000 16,150,000
Investment securities
Available-for-sale securities 60,112,612 67,428,673
Held-to-maturity securities 8,862,975 10,964,214
-----------------------------------
Total investment securities 68,975,587 78,392,887
Loans 242,156,473 227,847,742
Less: Allowance for loan losses (2,868,529) (2,626,279)
-----------------------------------
Net loans 239,287,944 225,221,463
Premises and equipment 7,231,672 7,124,929
Accrued interest 1,888,640 1,774,536
Stock in federal banks 1,314,600 1,314,600
Other assets 2,220,123 2,073,716
-----------------------------------
Total assets $ 370,116,774 $ 358,600,101
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 47,373,266 $ 54,670,008
Money market and saving deposits 146,480,234 134,746,677
Time deposits over $100,000 39,056,055 40,617,911
Other time deposits 69,033,322 67,879,165
-----------------------------------
Total deposits 301,942,877 297,913,761
Security repurchase agreements 27,011,329 25,558,206
FHLB advances 14,000,000 14,000,000
Long term debt 5,000,000 -
Other liabilities 2,360,699 1,772,702
-----------------------------------
Total liabilities 350,314,905 339,244,669
Shareholders' equity:
Common stock, no par value:
Authorized shares - 1999 and 1998 - 3,000,000
Issued and outstanding shares; 1999 - 1,908,279;
1998-1,908,279 19,747,320 19,747,320
Unearned compensation (397,075) (460,394)
Retained earnings 469,851 112,954
Accumulated comprehensive (loss) (18,227) (44,448)
-----------------------------------
Total shareholders' equity 19,801,869 19,355,432
-----------------------------------
Total liabilities and shareholders' equity $ 370,116,774 $ 358,600,101
===================================
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed consolidated financial statements.
1
<PAGE>
The National Bank of Indianapolis Corporation
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
----------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 4,363,625 $ 3,333,320
Interest on investment securities 1,100,175 842,290
Interest on federal funds sold 274,552 434,342
----------------------------
Total interest income 5,738,352 4,609,952
Interest expense:
Interest on deposits 2,742,883 2,345,141
Interest on repurchase agreements 290,497 282,540
Interest on FHLB advances 198,873 32,000
Other 6,458 -
----------------------------
Total interest expense 3,238,711 2,659,681
----------------------------
Net interest income 2,499,641 1,950,271
Provision for loan losses 240,000 156,000
----------------------------
Net interest income after provision for loan losses 2,259,641 1,794,271
Other operating income:
Trust fees and commissions 279,712 210,664
Service charges and fees on deposit accounts 104,006 70,653
Net gain on sale of mortgage loans 58,443 19,975
Other 317,452 97,549
----------------------------
Total other operating income 759,613 398,841
Other operating expenses:
Salaries, wages and employee benefits 1,346,750 1,043,138
Net occupancy 243,045 135,028
Furniture and equipment 137,389 111,753
Professional services 151,787 122,901
Data processing 143,287 104,761
Other 406,009 341,979
----------------------------
Total other operating expenses 2,428,267 1,859,560
----------------------------
Net income before tax 590,987 333,552
Federal and state income tax 234,090 -
----------------------------
Net income after tax $ 356,897 333,552
============================
Basic earnings per share $ 0.19 $ 0.18
============================
Diluted earnings per share $ 0.17 $ 0.17
============================
</TABLE>
2
<PAGE>
The National Bank of Indianapolis Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
-------------------------------
<S> <C> <C>
Operating activities
Net income $ 356,897 $ 333,552
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan losses 240,000 156,000
Depreciation and amortization 165,563 126,697
Net accretion of investments (446,755) (159,878)
(Increase) decrease in:
Interest receivable (114,104) 205,048
Other assets (167,303) (705,170)
Increase (decrease) in:
Other liabilities 587,997 666,224
-------------------------------
Net cash provided by operating activities 622,295 622,473
INVESTING ACTIVITIES
Net change in federal funds sold 550,000 (22,365,000)
Proceeds from maturities of investment securities held to
maturity 2,128,865 9,101,619
Proceeds from maturities of investment securities
available for sale 28,306,448 21,044,036
Purchases of investment securities held to maturity - (8,266,759)
Purchases of investment securities available for sale (20,524,141) (27,696,864)
Net increase in loans (14,306,481) (9,127,967)
Purchases of premises and equipment (272,306) (273,734)
-------------------------------
Net cash used by investing activities (4,117,615) (37,584,669)
FINANCING ACTIVITIES
Net increase in deposits 4,029,116 36,918,189
Increase in security repurchase agreements 1,453,123 6,928,775
Proceeds from issuance of stock - 87,530
Proceeds from issuance of long-term debt 5,000,000 -
Proceeds from issuance of stock 63,319 -
-------------------------------
Net cash provided by financing activities 10,545,558 43,934,494
-------------------------------
Increase in cash and cash equivalents 7,050,238 6,972,298
Cash and cash equivalents at beginning of year 26,547,970 11,446,150
-------------------------------
Cash and cash equivalents at end of period $ 33,598,208 $ 18,418,448
===============================
Interest paid $ 3,008,808 $ 2,586,758
===============================
Income taxes paid $ 97,942 $ 30,000
===============================
</TABLE>
3
<PAGE>
THE NATIONAL BANK OF INDIANAPOLIS
CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1999
is not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Corporation's Form
10-KSB for the year ended December 31, 1998.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Corporation adopted Statement 130, "Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Corporation's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Corporation's
available-for-sale securities, which prior to adoption were reported separately
in shareholders' equity to be included in other comprehensive income.
During the first quarter of 1999 and 1998, total comprehensive income amounted
to $383,118 and $412,754.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
Three months Ended March 31, 1999 Compared to the Three months Ended March 31,
1998:
The Corporation's results of operations depends primarily on the level of its
net interest income, its non-interest income and its operating expenses. Net
interest income depends on the volume of and rates associated with interest
earning assets and interest bearing liabilities which results in the net
interest spread. The Corporation had net income of $356,897 for the three months
ended March 31, 1999 compared to a net income of $333,552 for the three months
ended March 31, 1998. This change is primarily due to the growth of the Bank
allowing for more interest earning assets and net interest income compared to
the same period during 1998, thereby offsetting more of the operating expenses.
Net Interest Income
- -------------------
Net interest income increased $549,370 or 28.2% to $2,499,641 for the three
months ended March 31, 1999 from $1,950,271 for the three months ended March 31,
1998. Total interest income increased $1,128,400 for the three months ended
March 31, 1999 to $5,738,352 from $4,609,952 for the three months ended March
31, 1998. This increase is primarily a result of average total loans for the
three months ended March 31, 1999 being approximately $231,000,000 compared to
average total loans of approximately $165,000,000 for the three months ended
March 31, 1998. The loan portfolio produces the highest yield of all earning
assets. Investment portfolio income increased $257,885 or 30.6% to $1,100,175
for the three months ended March 31, 1999, as compared to $842,290 for the three
months ended March 31, 1998. This increase is primarily a result of the increase
in the average investment securities portfolio from approximately $52,000,000
for the three months ended March 31, 1998, to approximately $84,000,000 for the
three months ended March 31, 1999. Interest on federal funds sold decreased due
to a decrease in average federal funds sold of approximately $8,000,000 and due
to a lower yield for the three months ended March 31, 1999 over the same period
the previous year.
Total interest expense increased $579,030 or 21.8% to $3,238,711 for the three
months ended March 31, 1999, from $2,659,681 for the three months ended March
31, 1998. This increase is due to an increase in interest bearing deposits.
Total interest bearing liabilities averaged approximately $288,000,000 for the
three months ended March 31, 1999 as compared to approximately $213,000,000 for
the three months ended March 31, 1998. The average cost of interest bearing
liabilities was approximately 4.5% at March 31, 1999 compared to 5.0% at March
31, 1998.
5
<PAGE>
Provision for Loan Losses
- -------------------------
The amount charged to the provision for loan losses by the Bank is based on
management's evaluation as to the amounts required to maintain an allowance
adequate to provide for potential losses inherent in the loan portfolio. The
level of this allowance is dependent upon the total amount of past due and
non-performing loans, general economic conditions and management's assessment of
potential losses based upon internal credit evaluations of loan portfolios and
particular loans. Loans are entirely to borrowers in central Indiana.
During the three months ended March 31, 1999, $240,000 was charged to the
provision for loan losses compared to $156,000 for the three months ended March
31, 1998. At March 31, 1999, the allowance was $2,868,529 or 1.18% of total
loans. This compares to an allowance of $2,096,385 or 1.26% as of March 31,
1998. Loans past due over 30 days totaled $176,470 or 0.07% of total loans at
March 31, 1999 compared to $64,922 or 0.03% of total loans at March 31, 1998.
Other Operating Income
- ----------------------
Other operating income for the three months ended March 31, 1999, increased
$360,772 or 90.5% to $759,613 from $398,841 for the three months ended March 31,
1998. The increase is primarily due to an increase in trust fees and commissions
of $69,048 or 32.8% from $210,664 for the three months ended March 31, 1998 to
$279,712 for the three months ended March 31, 1999. The increase in trust income
is attributable to the increase in total assets under trust management of
approximately $75,000,000 from approximately $295,000,000 at March 31, 1998 to
approximately $461,000,000 at March 31, 1999. The increase in other operating
income is also attributable to an increase in service charges and fees on
deposit accounts of $33,353 or 47.2% from $70,653 for the three months ended
March 31, 1998 to $104,006 for the three months ended March 31, 1999. This
increase is attributable to the increase in average demand deposit accounts of
$55,000,000 from approximately $133,000,000 at March 31, 1998 to approximately
$188,000,000 at March 31, 1999. A net gain on the sale of mortgage loans of
$58,443 for the three months ended March 31, 1999 compared to $19,975 for the
three months ended March 31, 1998 also contributed to the increase in other
operating income. In December 1998, the Bank purchased the downtown office
building at 107 North Pennsylvania Street which houses its main office as well
as the Corporation's main office. Contributing to the increase in other
operating income was the rental income from the other tenants in the building.
For the three months ended March 31, 1999, building rental income was $130,825
compared to $0 for the three months ended March 31, 1998.
Other Operating Expenses
- ------------------------
Other operating expenses for the three months ended March 31, 1999 increased
$568,707 or 30.6% to $2,428,267 from $1,859,560 for the three months ended March
31, 1998. Salaries, wages and employee benefits increased $303,612 or 29.1% to
$1,346,750 for the three months ended March 31, 1999 from $1,043,138 for the
three months ended March 31, 1998. This increase is primarily due to the
increase in the number of employees from 76 full time equivalents at March 31,
1998 to 93 full time equivalents at March 31, 1999. Net occupancy expense
increased $108,017 for the three months ended March 31, 1999 over the same
period the previous year. This is due to the acquisition of the 107 North
Pennsylvania building in December 1998 and the opening of a new banking center
at 4930 North Pennsylvania in March 1998. Furniture and equipment expense
icnreased $25,636 for the three months ended March
6
<PAGE>
31, 1999 over the same period the previous year. Professional services expense
increased $28,886 or 23.5% from $122,901 for the three months ended March 31,
1998 to $151,787 for the three months ended March 31, 1999. The increase is due
to courier service and accounting fees.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation must maintain an adequate liquidity position in order to respond
to the short-term demand for funds caused by withdrawals from deposit accounts,
extensions of credit and for the payment of operating expenses. Maintaining this
position of adequate liquidity is accomplished through the management of a
combination of liquid assets; those which can be converted into cash and access
to additional sources of funds. Primary liquid assets of the Corporation are
cash and due from banks, federal funds sold, investments held as "available for
sale" and maturing loans. Federal funds sold represent the Corporation's primary
source of immediate liquidity and were maintained at a level adequate to meet
immediate needs. Federal funds averaged approximately $24,000,000 and
$32,000,000 for the three months ended March 31, 1999 and 1998, respectively.
Maturities in the Corporation's loan and investment portfolios are monitored
regularly to avoid matching short-term deposits with long-term loans and
investments. Other assets and liabilities are also monitored to provide the
proper balance between liquidity, safety, and profitability. This monitoring
process must be continuous due to the constant flow of cash which is inherent in
a financial institution.
The Corporation actively manages its interest rate sensitive assets and
liabilities to reduce the impact of interest rate fluctuations. At March 31,
1999, the Corporation's rate sensitive liabilities exceeded rate sensitive
assets due within one year by $41,761,911.
As part of managing liquidity, the Corporation monitors its loan to deposit
ratio on a daily basis. At March 31, 1999 the ratio was 80.2 percent which is
within the Corporation's acceptable range.
The Corporation experienced an increase in cash and cash equivalents, its
primary source of liquidity, of $7,050,238 during the first three months of
1999. The primary financing activity of deposit growth provided net cash of
$4,029,116. Lending used $14,306,481, investments provided $9,911,172, and
decreasing federal funds sold provided $550,000. The Corporation's management
believes its liquidity sources are adequate to meet its operating needs and does
not know of any trends, events or uncertainties that may result in a significant
adverse effect on the Corporation's liquidity position.
7
<PAGE>
CAPITAL RESOURCES
The Corporation's source of capital since commencing operations has been from
issuance of common stock, results of operations, and the issuance of long term
debt to a non-affiliated third party.
The Corporation incurred indebtedness in the amount of $5,000,000 pursuant to a
Revolving Credit Agreement with Harris Trust and Savings Bank dated March 26,
1999. The aggregate amount of the revolving line of credit is $7,500,000
maturing December 31, 2005. Mandatory principal payments are due as follows,
thus reducing the aggregate line amount available:
Date Amount
---- ------
December 31, 2003 $3,000,000
December 31, 2004 $1,000,000
There are many different interest rate options available. Each option is
available for a fixed term of 3 months (on a quarter basis). The Corporation is
currently paying Adjusted LIBOR plus 2.0% which equates to 7.0%. Interest
payments are due quarterly. The Corporation made a $5,000,000 capital
contribution to the Bank from the loan proceeds.
The Bank has incurred indebtedness pursuant to FHLB advances as follows:
Amount Rate Maturity
------ ---- --------
$ 2,000,000 6.40% 08/01/2001
6,000,000 5.66% 09/04/2003
3,000,000 5.39% 10/03/2005
3,000,000 5.55% 10/02/2005
------------
$14,000,000
The Bank may add indebtedness of this nature in the future if determined to be
in the best interest of the Bank.
Capital for the Bank is above regulatory requirements at March 31, 1999.
Pertinent capital ratios for the Bank as of March 31, 1999 are as follows:
Minimum
Actual Requirements
------ ------------
Tier 1 risk-based capital ratio 9.66% 4.0%
Total risk-based capital ratio 10.80% 8.0%
Leverage ratio 6.79% 4.0%
Dividends from the Bank to the Corporation may not exceed the undivided profits
of the Bank (included in consolidated retained earnings) without prior approval
of a federal regulatory agency. In addition, Federal banking laws limit the
amount of loans the Bank may make to the
8
<PAGE>
Corporation, subject to certain collateral requirements. No dividends were
declared, or loans made, during 1999 or 1998 by the Bank to the Corporation.
YEAR 2000
Management has completed an assessment of all its computer systems and software
and other operating equipment used in the daily operation of the Bank that could
be affected by the Year 2000. Management has established a plan to thoroughly
address the issues related to the Year 2000.
Management divided all computer systems and software and operating equipment
into two separate categories - Mission Critical and all other. Mission Critical
refers to computer systems and software and operating equipment that is the most
critical to the daily operation of the Bank. Assessment, remediation, and
testing of all mission critical computer systems and software and operating
equipment was substantially completed by the end of March 1999. Assessment and
remediation of all non-mission critical computer systems and software and
operating equipment has been substantially completed with testing to be
completed by the end of June 1999.
Management is also working with significant loan customers to monitor the
progress of their Year 2000 efforts.
Management believes that it has an effective plan in place to resolve the Year
2000 issue in a timely manner. Regular status reports are made by Management to
the Bank's Board of Directors relating to Year 2000. The Corporation currently
has contingency plans in place in the event it does not complete all phases of
the Year 2000 program.
Since the Bank's main computer and software services are provided by outside
third-party vendors, the cost to make computer systems and software and
operating equipment Year 2000 compliant is estimated to be immaterial
9
<PAGE>
OTHER INFORMATION
Item 1. Legal Proceedings
Neither The National Bank of Indianapolis Corporation nor its
subsidiary are involved in any pending legal proceedings at
this time, other than routine litigation incidental to its
business.
Item 2. Changes in Securities - Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the last
quarter of the fiscal year.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 1999
--------------
THE NATIONAL BANK OF INDIANAPOLIS CORPORATION
/s/ Debra L. Ross
-------------------------------------------
Debra L. Ross
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,598,208
<INT-BEARING-DEPOSITS> 18,000,000
<FED-FUNDS-SOLD> 15,600,000
<TRADING-ASSETS> 60,112,612
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 8,862,975
<INVESTMENTS-MARKET> 8,926,365
<LOANS> 242,156,473
<ALLOWANCE> (2,868,529)
<TOTAL-ASSETS> 370,116,774
<DEPOSITS> 301,942,877
<SHORT-TERM> 27,011,329
<LIABILITIES-OTHER> 2,360,699
<LONG-TERM> 19,000,000
0
0
<COMMON> 19,350,245
<OTHER-SE> 451,624
<TOTAL-LIABILITIES-AND-EQUITY> 370,116,774
<INTEREST-LOAN> 4,363,625
<INTEREST-INVEST> 1,100,175
<INTEREST-OTHER> 274,552
<INTEREST-TOTAL> 5,738,352
<INTEREST-DEPOSIT> 2,742,883
<INTEREST-EXPENSE> 3,238,711
<INTEREST-INCOME-NET> 2,499,641
<LOAN-LOSSES> 240,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,428,627
<INCOME-PRETAX> 590,987
<INCOME-PRE-EXTRAORDINARY> 590,987
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365,897
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 6.94
<LOANS-NON> 19,985
<LOANS-PAST> 176,470
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,626,279
<CHARGE-OFFS> 0
<RECOVERIES> 2,250
<ALLOWANCE-CLOSE> 2,868,529
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,868,529
</TABLE>
